There are a variety of ways in which you can use gold, like jewellery, coins, or bars. Also, you can invest in financial products that follow gold prices. However, remember that gold prices don't stay the same everywhere. They change not only between countries but also between different states and cities within India. For example, at the time of writing this article, the 24K gold price per gram was Rs. 7,593 in Chennai, Rs. 7,608 in Delhi, and Rs. 7,598 in Ahmedabad.

Do you know the reason for this variation? Primarily, it happens because of factors like local demand, taxes, transportation costs, and even government policies. This causes the gold prices to fluctuate between different cities even on the same day. For more clarity, let’s study the top 5 reasons that cause this variation.

• Gold prices fluctuate based on supply and demand.
• During economic uncertainty, people prefer safe investments like gold. This leads to higher demand and prices.
• Within states, gold prices depend on factors, like the initial purchase price, transportation costs, and local demand.
• The price at which jewellers acquire gold directly affects local prices. If jewellers buy gold at a lower cost, they can sell it for less. This results in price variations.
• Local jewellery associations also influence local gold prices by setting rates based on market conditions.

Below are the top 5 reasons that cause the gold prices to vary between different Indian cities:

1. Transportation costs

Be aware that India is a major importer of gold, and since gold is a physical item, it needs to be transported. Most gold is flown into the country and then distributed to different regions. Generally, transporting gold involves costs like fuel, vehicle expenses, and paying the people involved. Additionally, gold requires tight security, which further increases the cost of moving it.

As per a thumb rule, the farther the gold has to travel, the higher the transportation cost. This makes gold more expensive in places where it’s harder or costlier to deliver, such as remote or interior locations.

2. The quantity of gold purchased

The demand for gold isn’t the same everywhere in India. Southern states, like Kerala, consume a large portion of the gold in the country. Cities like Chennai, Mumbai, Delhi, and Kolkata also have high demand. When demand is higher, several gold sellers buy it in large quantities, which allows them to get discounts. Later, these sellers sell the gold at lower rates.

Now, it is worth mentioning that in places with less demand, sellers buy smaller amounts. Thus, they miss out on bulk discounts, which leads to higher prices for buyers in those areas.

3. Local jewellery associations

Jewellery associations in different cities or regions play an important role in deciding the “local price of gold”. For example, in Tamil Nadu, “The Jewellers and Diamond Traders’ Association”, Madras, sets the daily gold prices. Similarly, such associations are also present in other states and cities.

While deciding the gold price in their local markets, these associations consider factors like:

• Global gold prices
• Local demand
• Transportation costs

4. Purchase price of gold

The price at which jewellers buy gold significantly impacts the final selling price. That’s because if they purchased gold when prices were low, they could sell it cheaper. Additionally, the source of gold also matters. India charges a 10% import duty and a 3% tax on official gold. These taxes vary from country to country and again lead to price fluctuations.

5. Macroeconomic factors

Primarily, gold prices are affected by the balance between supply and demand. This balance is influenced by broader economic conditions, such as:

• When the economy faces uncertainty (say a recession), more people buy gold because it is seen as a safer investment.
• High inflation pushes people to invest in gold because it holds value better than cash.
• A good monsoon boosts the income of farmers. This leads to higher gold purchases, especially for weddings and festivals.

Now, if we talk about the negative side, when interest rates rise, people prefer fixed-income investments over gold. In such a situation, the gold prices either drop or stabilise.

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